Asked by Jordan Jeyachandran on May 27, 2024
Verified
The ________ measure of returns ignores compounding.
A) geometric average
B) arithmetic average
C) IRR
D) dollar-weighted
Arithmetic Average
The simple mean calculated by adding a set of values and then dividing by the number of values.
Geometric Average
The nth root of the product of n numbers, used to calculate average rates of return over time for investments that undergo compounding.
Compounding
The process where an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.
- Comprehend the distinctions between arithmetic mean return and geometric mean return, and their consequences for predicting investment outcomes.
Verified Answer
Learning Objectives
- Comprehend the distinctions between arithmetic mean return and geometric mean return, and their consequences for predicting investment outcomes.
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